Does a Co-Applicant Improve Your Chances of Getting a Higher Home Loan? Find Out Here

In many cases, home loan applicants fail to get the desired amount approved due to several reasons, such as insufficient credit score, ineligibility due to lower income, lack of required documents, and many more.

For many prospective homeowners, the addition of a co-applicant emerges as a strategic way to bolster their chances of loan approval and potentially secure a higher loan amount. However, does adding a co-applicant truly improve your chances of getting a higher home loan amount?

In this article, we will discuss whether a co-applicant's income improves your chances of getting a higher home loan amount. By exploring the impact of a co-applicant on home loan dynamics, this article aims to empower readers with the knowledge necessary to make informed decisions in their homeownership journey.

What is a joint home loan, and who is a co-applicant in a home loan?

A joint home loan involves applying for a loan alongside another individual, known as a co-applicant. This co-applicant participates fully in the loan approval process and shares equal responsibility for loan repayment, effectively creating a joint home loan arrangement. While the co-applicant may not necessarily be a co-owner of the property, their inclusion is often essential, even if they lack independent income, such as in the case of a homemaker. In such instances, the loan amount eligibility is primarily based on the main applicant's income.

Including a co-applicant can enhance the likelihood of loan approval and potentially result in a higher loan amount, facilitating the purchase of the desired property. However, the co-applicant must be a close relative of the main applicant to meet lender requirements and ensure smooth processing of the loan application.

Here are some familial relationships commonly seen in joint home loan applications:

1. Spouses:

Married couples frequently opt for joint home loans, especially in urban areas where both partners are employed. This arrangement not only allows for shared ownership but also enhances loan eligibility with dual incomes.

2. Father and Son(s):

A father can jointly apply for a home loan with his son if he is the only son. In such cases, either party can be designated as the primary owner. However, if the father has multiple sons and wishes to co-apply with them, he cannot be the primary owner.

3. Parent and Daughter:

Parents can co-apply for a home loan with their unmarried daughter, provided the property is registered in her name. However, joint applications with married daughters are typically not permitted.

4. Brothers:

Some lenders allow brothers to co-apply for a home loan if they co-own the property, share the same residential address during the loan application, and plan to reside together in the property.

Note: Lenders typically restrict co-applicants for joint home loans to spouses or immediate blood relatives of the primary applicant. However, some lenders may not authorise joint home loans for siblings or unmarried partners. Additionally, lenders commonly mandate that all co-owners of the property must also be co-borrowers of the home loan.

[Also Read: Here's How You Can Plan the Down Payment for Your Home Loan with Mutual Funds]

What are the advantages of including a co-applicant in your home loan application?

1. Increased Loan Eligibility:

Incorporating a co-applicant into your home loan application offers various benefits, primarily by increasing your loan eligibility. Financial institutions impose stringent eligibility criteria for home loans, which some applicants may struggle to meet, leading to potential application rejection or approval for a lower loan amount. However, by including a co-applicant, lenders assess the combined eligibility of all applicants, thereby boosting the likelihood of loan approval or qualifying for a higher loan amount.

For instance, if you require a home loan of Rs 1 Cr but are eligible for only Rs 75 lakhs individually, adding a working spouse as a co-applicant expands the pool of income and assets considered by the bank. When a borrower includes an additional co-applicant with a supplementary income in their loan application, they become eligible for a larger loan amount. This is because lenders assess the combined income levels of both applicants, resulting in a higher eligibility threshold compared to an individual seeking a home loan. Various factors, such as income, credit history, and ability to afford Equated Monthly Instalments (EMIs), are scrutinised during the evaluation process.

This collaborative approach enables you to access the desired loan amount or even secure additional funds for ancillary expenses like interior furnishings. Nonetheless, it is crucial to evaluate each co-applicant's financial standing, as a high debt-to-income ratio or poor credit score could jeopardise the success of the application.

2. Access to Preferential Interest Rates for Women:

Many home loan providers extend preferential interest rates to women borrowers, typically offering a marginal reduction of 0.05% or 5 basis points. To avail of this benefit, a female applicant can serve as either the primary borrower or a co-applicant. However, eligibility for the lower interest rate hinges on the woman applicant's status as a sole or joint property owner. Additionally, lenders typically assess the female applicant's credit history and repayment capacity when determining loan terms.

Although the reduction in interest rates may seem modest, typically amounting to just 0.1 per cent lower than the standard home loan rates, it can still have a noticeable impact on EMI payments, accelerating the repayment process.

3. Tax Benefits for All Co-applicants:

Co-applicants are also eligible to receive individual tax benefits. However, for this to be applicable, both applicants must be joint owners of the property and contribute towards the repayment of Equated Monthly Instalments (EMIs). Homeowners can leverage tax benefits under Section 80C and 24b of the Income Tax Act. These benefits include deductions of up to Rs 1.5 lakhs for principal repayments (under Section 80C) and up to Rs 2 lakhs for interest paid on the home loan (under Section 24b). In the case of a joint home loan, all co-applicants can claim tax deductions, provided they are co-owners of the property for which the loan is obtained. This enables each co-applicant to optimise their tax liabilities as per applicable regulations.

4. Tool for Credit Score Improvement:

This arrangement serves as a valuable tool for first-time applicants and co-applicants to enhance their credit scores. Consequently, it improves the likelihood of success in future home loan applications.

Here are key considerations to keep in mind when applying for a home loan with a co-applicant:

1. Evaluation of Applicants:

Banks and lenders assess joint loan applications based on various factors, including the age, credit scores, income, and debt-to-income ratio, among others, of both the primary and co-applicant. If the co-applicant's credit score is low, it could lead to rejection of the loan application. Lenders typically prefer applicants with a positive credit repayment history, as they perceive them as lower-risk borrowers.

2. Repayment Capacity:

Lenders generally approve joint loan applications when both the primary and co-applicant demonstrate sufficient repayment capacity. Meeting the lender's expectations regarding repayment capability is crucial for loan approval.

3. Impact on Credit Score:

Rejection of a home loan application can adversely affect your credit score. If certain eligibility criteria are not met, lenders may opt to approve the home loan but at a higher interest rate rather than rejecting it outright. It's essential to be aware of how loan applications and potential rejections may impact your creditworthiness.

To conclude:

Opting for a co-applicant in your home loan application can unlock numerous benefits, from enhanced loan eligibility to potential tax advantages. However, it's imperative to consider factors such as the relationship eligibility criteria set by lenders, as well as the potential impact on credit scores in the event of rejection. Collaborating with a co-applicant can streamline the loan process and pave the way for achieving homeownership goals. Ultimately, conducting thorough research and understanding the responsibilities and implications are crucial for making informed decisions when navigating the complexities of joint home loan applications.

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This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.